Positive on growth strategies

During our recent NDR with SGX in Malaysia, investors were interested in:

growth strategies and opportunities; and

the latest developments on the BM-SGX trading link and SGX India equity derivatives.

We believe SGX is a good proxy for the market cycle, with healthy FY18-19E ROEs of ~35% and yields of ~4%.

Maintain BUY and Target Price SGD8.73, based on an unchanged P/E of 23x FY19 EPS, in line with its mean since 2012.

Grow FX and fixed income; open to inorganic growth

SGX will diversify revenues by focusing on FX and fixed income for further growth. Currently, it has 21 currency futures and options contracts (in contrast to 6 currency futures in Jan’14) with significant volume market share in USD/CNH ( > 70%) and INR/USD ( > 40%) in 2Q18. It looks to offer more FX contracts.

On fixed income, SGX is well-positioned to ride the Asian growth story as more Asian issuers come on board. New bond listings rose 85% y-o-y to 636 as at 1H18 (1H17: 343). For SGX Bond Pro, it expects USD1b matched volumes by 2018.

SGX is also open to inorganic opportunities, such as trading platforms that can complement its FX/fixed income business. It has the ability to leverage given its healthy balance sheet with zero debt.

Focus on attracting technology companies

Technology is one of the sectors that SGX will focus on for its listing strategy. It looks to target start-ups over the next few years and is positive that the collaboration with Nasdaq can facilitate cross-listing of technology companies on both exchanges.

On dual class shares, it intends to target listings of companies that are between SGD1-5b.

Recent developments

The details of the BM-SGX trading link are still being worked out with the timeline set to be end-2018. We view this as a positive development and expect synergies to come through in this government-to-government initiative (see report: Singapore Exchange - Another Positive Catalyst).

On SGX India equity derivatives, it is:

working with NSE to develop a link in GIFT City; and

to list successor products soon (which require regulators’ approvals) and plans to engage market participants to roll into these successor products from the current SGX Nifty suite of products.

Stock analysis research and articles on this site are for the purpose of information sharing and do not serve as recommendation of any transactions. You will need to make your own independent judgment regarding the analysis. Source of the report is credited at the end of article whenever reference is made.